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Why is it impossible to determine that the LPG cylinder will cost S/70 in September?

Why is it impossible to determine that the LPG cylinder will cost S/70 in September?

In recent weeks, unions linked to the sale of liquefied petroleum gas for domestic use (LPG-E) have warned that the prices of this fuel could rise to S/70 if the subsidy with which the State, precisely, acquires their products.

It happens that the Peruvian State, through the Ministry of Energy and Mines (Minem), tries to combat the volatility of international LPG prices through the Fuel Price Stabilization Fund (FEPC), a kind of exchange that acts as a of prices to establish the maximum limit that the end user will pay.

Let’s take a practical example: suppose that the Stabilization Fund establishes a price range of between S/3 and S/5 for the kilogram of LPG. No one can charge less or more than that in the wholesale market. If one day the price falls to S/1, the supplier will continue selling at S/3, and that difference of S/2 will go to the stock market. The day the price rises to S/7, the supplier will not be able to charge more than S/5, but now he will be able to take that difference of S/2 from the stock market to compensate for the “loss.”

The problem occurs when the price never goes down. So, the stock market is never full and, when it is time to pay the seller because the prices broke the upper limit of the range, the State is forced to assume the increase with its own resources. It becomes a subsidy on the fly, according to the hydrocarbon specialist, Erick Garcia.

The Ministry of Economy and Finance (MEF) had already warned, last April, that there is a debt of more than S/1,000 million with the suppliers of this fuel in Peru. This “camouflaged subsidy” is not eternal either, as it has expiration dates: the current one expires this Thursday, June 27, and therefore the pressure from LPG sellers these days, who are seeking to renew it so as to “not lose market share.” explains García.

“In all the time that LPG and Diesel have been in the FEPC, the State has compensated more than what the companies have contributed, in a ratio of 10 to 1. That means that, no matter how much it is said that it is a revolving fund, it is a subsidy. And like any other subsidy, it should be targeted,” says the former director of Hydrocarbons at Minem.

On the other hand, it must be taken into account that the Stabilization Fund only applies to wholesale prices, since the retail market remains free, and tied to the decision of many small retailers. For this reason, García explains, It is impossible to determine whether or not it will cost S/70 in the next three months, because it is about free market. A position discordant with that of the Peruvian Liquefied Gas Company (SPGL).

“One of the important changes is that the FEPC is only activated when the country requires it. It is a stabilizing fund, not a mechanism to simply lower prices,” he adds.

Massify natural gas vs. subsidize LPG: What is the way?

In addition, García also points out a fallacious responsibility on the part of the Peruvian Government for delaying the massification of natural gas in the regions of greatest density and with a high level of LPG consumption in Peru.

He explains that the resources that should be allocated to bring gas with a regulated and cheap price to all Peruvians end up going to subsidize another more polluting gas for which an international price is paid – despite the fact that 80% of its inputs come from Camisea-.

Thus, the delay in massification represents nothing more than additional pressure on the coffers managed by the MEF year after year and for which Minister Arista must decide, until this Wednesday the 26th, whether to renew the permanence of LPG-E in the Fund of Stabilization.

“And recently, the unions have mentioned that they are also looking to include LPG-G (in bulk), that is, subsidize LPG for vehicles. It would be the worst thing that could happen,” he says.

Source: Larepublica

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